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This paper investigates whether board of director independence affects the financial leverage of listed companies in Saudi Arabia. Although many studies have investigated capital structure theories, there are limited studies that consider board of director independence as a determinant of capital structure especially in the absence of tax regime. In a tax free regime, financial leverage would not be perceived as a tool to increases firm performance since firms cannot exploit the tax shield. This study employs panel data of 122 non-financial listed firms during the period 2012-2015. The results show a significant negative relationship between the presence of independent directors and capital structure; the independent directors appeared to play a significant role in motivating managers to pursue a low level of leverage among Saudi listed firms. This finding is robust to different model specifications.

Board of Director Independence and Financial Leverage in the Absence of Taxes